Effective January 1, 2020, the Patient Protection and Affordable Care Act (ACA) imposes a 40% non-deductible Excise Tax on High Cost Plans (sometimes called the “Cadillac Tax”). The Cadillac Tax is imposed on the excess value which is the amount by which the value of the health coverage exceeds specified threshold amounts. Plan sponsors will be required to calculate and report the amount of the excise tax, if any, that is owed with regard to their health plans. Although the excise tax generally will be paid by insurers and/or third party administrators, the amount of the tax is expected to be passed through to the employer sponsoring the high-cost plan (or plans).
If employers are found to be under-reporting the cost of their health plans, the IRS has the authority to impose a penalty equal to the tax not paid, plus interest.